For self-insured employers, the stop loss or reinsurance market has been a haven for competition for many years. Fueled by the competitive forces of carriers entering the market and those seeking growth at all costs, pricing remained soft – insurers seeking rate increases were met with stiff competition and ultimately had to decide to either back off their requests or see clients walk. But now, as claim amounts continue to increase for various reasons, the soft market conditions have started to deteriorate and prices are increasing.
Traditional stop loss players such as Voya, HCC, Sun Life and HM have been met by newcomers – such as Guardian, Berkshire Hathaway, Swiss Re and soon-to-be Unum – that are aggressively trying to build their blocks of business. Even the large traditional players such as Anthem BlueCross BlueShield, Aetna, Cigna, and UnitedHealthcare have not been immune, as their books are under the same pressure – margins are decreasing due to competition.
A recent National Association of Insurance Commissioners (NAIC) industry study documented that for the past few years loss ratios are starting to really tick up – and for some, significantly. Of the 10 largest carriers, the loss ratio position has increased by an astounding 10 basis points over the past five years. Carriers that were once enjoying the profitability of a 71% loss are now staring at a roughly 81% figure, to their dismay. As a frame of reference, typical desired loss ratios are between 60% and 70%.
The recently completed January 1 renewal cycle has seen pricing starting to firm. Either holding the line on renewal positions or more conservatively underwriting new business, everyone is trying to improve their loss ratios. Stop loss underwriting is not for the faint of heart, and we’ve seen carriers leaving the business and observed other smaller ones repositioning for the future.
It will be interesting to watch this coming year to see whether this firming trend continues or if we’ll experience a return to the softer market.